Africa represents a potential rich hunting ground for merger and acquisition deals, in particular as majors look to shed non-core assets to focus on bigger plays, such as deep water.
“There will be a lot of opportunities because of the fact that the majors are getting into the very big projects today – like in Mozambique, and also in places like Senegal. That will open the door to various transactions,” Frank Pluta, energy group head, energy and natural resources at French bank Natixis, said at the Africa Oil Week conference in Cape Town on Thursday.
Instances of majors spending big on African assets recently include ExxonMobil getting into Mozambique, BP partnering with Kosmos Energy in Senegal and Mauritania, and Total’s $8.8 billion acquisition of the African portfolio of Anadarko Petroleum after Anadarko was bought by Occidental Petroleum.
Both ExxonMobil and Total, along with other majors, are running large-scale asset sale programmes after spending big on entering large plays – which presents opportunities for independents and others.
One Pluta referenced was the recent acquisition of Eland Oil & Gas by Nigerian independent Seplat Petroleum Development in October in a deal worth around $484 million.
Similar opportunities for deals around the $500 million mark and larger will open up in the African market, Pluta and his fellow panelists agreed.
“I think players are still being cautious and selective in their approach to M&A,” said Sheivaan Naidoo, director of PwC.
“There is still a lot of opportunity around consolidation in the market, particularly around smaller independents as they scale through the cycle.
“We also see continued efforts the majors to continue to dispose of non-core assets, to rationalise and focus on higher-quality, world-class deep-water opportunities.
“I think there is scope for further growth on the continent, spearheaded by a lot of the independents and indigenous companies – whether that be new acquisitions or corporate restructures.”
Naidoo and Pluta were joined on stage by Tom Hickey, chief executive of newly formed private equity-backed Boru Energy. The Irish player is backed by funds of up to $1 billion – minus debt – by private equity giant Carlyle Group, as it hunts for non-operated positions in Sub-Saharan Africa.
“We also see opportunities in terms of companies rebalancing their portfolios,” Hickey said.
“People are managing their portfolios in terms of looking at assets that are core, non-core, or perhaps they want to reallocate their cash. You need new companies, new supplies of capital and people with balance sheets to avail of those opportunities.”
Hickey said a challenge is to create the right team to seize opportunities.
“Africa can be a very rewarding and very accessible place to do business if you understand it and how to build relationships.”
There is also space for both the public markets and private equity to get involved in transactions on the continent.
“I think there is an imperative on the public markets side to try to be bigger and more sustainable and create a platform where you can look (sustain returns to shareholders) over a longer period of time,” Hickey said.
“For private equities, that slightly longer investment horizon, that ability to recognise that we live in an industry where you can have cycles and you can have dips and turbulence from time to time, means that there is certainly an advantage to be patient and having a slightly longer view on things,” he said.
“People’s view on how long they should expect to be invested for and what an exit really means actually evolves over time.”
Hickey added: “Ultimately it comes down to asset quality.”